Trump tweet fuels rally on ECB day

The momentum crash that we highlighted in yesterday’s equity update seems to have run out of fuel with quant funds having liquidated the necessary positions. While momentum stocks were not outperforming in yesterday’s rally, they did have a positive session. One thing less to worry about for now.

Nikkei enjoys maximum strength from weaker JPY and rising rates

Japanese equities were once again the best performing equity market in Asia as the country’s equity market benefits the most from weaker JPY, higher rates and improving macro backdrop. It’s becoming a bit tiring to repeat our stance, but we still prefer Japanese equities if we have risk-on in equity markets. German equities are a great alternative for European traders that do not want the JPY exposure.

ECB and European banks

European banks are up 12% from the lows in August as investors anticipating a tiering system on excess reserves that will immediately relieve banks of their deposit pain. In the three months leading op to Bank of Japan’s QE programme and tiering system in April 2013 Japanese banks were also repriced by around 50%. However, the lesson learned from Japan is that it alleviated some short-term pain, but it did not change the structural issue of weak loan demand and low profitability. 

As a result, investors must be willing to take profits on those tactical gains from being long European banks. If Japan is any guidance the rally in European banks could, given the right stimulus announced today on the ECB meeting, extend for a month so one has to be opportunistic and analyse today’s ECB decision correctly.

Stocks to watch

Recently London Stock Exchange (LSE:xlon) made a bold bet to acquire Refinitiv (the former Thomson Reuters data business) to create a financial data powerhouse to compete against Bloomberg. This industry transforming deal is now being supercharged from above with Hong Kong Exchanges & Clearing (00388:xhkg) making a $36.6bn bid for London Stock Exchange which shares were up 6% in yesterday’s trading. Investors were not excited about HKEX’s bid for LSE with its shares down 3.5% and flat this morning. Why should investors care? Three years ago, Intercontinental Exchange made a bid for LSE but then walked away. The complete acquisition analysis lies there ready to be pulled out and we would not be surprised to see a counteroffer from ICE. Also, according to the Financial Times, LSE is set to reject the HKEX bid. There also could be a political angle on the acquisition bid from HKEX due to souring relationship between the US and China.

Oracle released FY20 Q1 earnings yesterday with revenue and EPS in line with estimates while the Q2 guidance disappointed on revenue growth and EPS. In addition, Oracle announced that the CEO Mark Hurd will take a leave of absence due to health-related reasons. Shares were initially down as much as 6.7% but then rebounded during extended trading hours as the conference call calmed investors enough. The trajectory of its cloud business is a positive for the company’s outlook as it is the future of the industry.